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AS-16 Borrowing Cost - Coggle Diagram
AS-16 Borrowing Cost
- Treatment of Borrowing Cost
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- Definition of Qualifying Asset: Takes substantial time for readiness.
- Examples of Qualifying Assets
- Construction-phase Tangible Assets
- Development-phase Intangible Assets (e.g., patents)
- Investment properties requiring substantial preparation time
- Inventories needing substantial period for sale readiness
- Exclusions from Qualifying Assets
- Assets ready for intended use/sale upon acquisition
- Routinely manufactured inventories
- Investment property not requiring substantial period for preparation
- Interest, commitment charges on borrowings
- Amortization of borrowing-related discounts/provisions
- Ancillary costs, finance charges under leases, foreign currency exchange differences
- Factors for Borrowing Cost Consideration
- Use for qualifying asset acquisition
- Capitalization Rate: Weighted average of borrowing costs
- Limit: Cannot exceed actual incurred borrowing costs
- Commencement of Capitalization
- Upon incurring borrowing cost
- Necessary asset preparation activities underway
- Incurring expenditure for asset acquisition, construction, or production
- Capitalization of Borrowing Costs
- Criteria: Directly attributable costs, future economic benefits, reliable cost measurement
- Capitalization amount: Actual borrowing costs minus any income from temporary investments
- Expenditure on Qualifying Assets
- Includes cash payments, asset transfers, or interest-bearing liabilities
- Deduct progress payments received and grants from expenditure
- Suspension of Capitalization
- During extended active development interruptions (e.g., strikes)
- No suspension for temporary delays part of asset readiness
- Borrowing cost calculation policy
- Amount capitalized during the period
- Objective: Address accounting treatment of interest and other costs incurred when borrowing funds to acquire or construct fixed assets.
- Closure of Capitalization
- When activities for asset readiness are substantially complete